Yes, gold’s been hammered. Yes, silver’s been hammered even harder. Yes, it’s ugly out there. But it’s all perfectly normal.

It’s happened before. In fact, it usually happens once or twice a year. It always seems to happen when the Chicago Mercantile Exchange changes its margin requirements. And it’ll happen again.

And if you’re one of those people who wished they’d bought gold but didn’t because the price had gone up too much, now’s your chance.

A nasty fall for gold

Let me start with the ten-year, log chart of gold. I have drawn some parallel trend lines on either side. As you can see, gold went to its upper trend line, then bounced off it, just as it did in May 2006 and February 2008, the previous occasions when gold got too far ahead of itself.

Based on this chart, the gold price could fall to $1,200 an ounce and there would still be an argument that the bull market is intact. Unless this exceeds the ugliness of 2008, I don’t think it’ll do that.

So how far have we fallen? The high earlier in the month was $1,920 and on Monday morning we touched $1,530. Almost $400. That’s quite a wallop.

But at the beginning of July gold was at $1,480. We’re higher than we were at the beginning of July.

I’ve always recommended buying gold on pullbacks. When gold pulls back to its 52-week moving average (its average price over the last year), buy then. But, although it would regularly do so between 2001 and 2008, since 2009 gold hasn’t done that. The furthest it’s fallen is to its 144-day moving average and that, as I’ve identified before, has been proving an excellent entry point.

On the following chart, the red line shows the 144-day moving average. We actually went through for a couple of hours on Monday, though outside of US trading.

It wouldn’t surprise me to see the 144-day moving average fail in the coming months. I’m not saying it will. With all the goings-on in Europe, we’re in anything-can-happen territory. But the evidence of the last three years says it won’t.

The one-year moving average sits at just below $1,500, so that’s another possible target.

Gold and silver have been hit by margin hikes

Over the summer, gold had actually decoupled from stock markets and was behaving like the safe haven it is purported to be. Every time stock markets sold off, money would go into gold.

But then the Chicago Mercantile Exchange (CME) – the world’s largest commodity exchange – upped the amount of margin it required to buy a gold future (in other words, you had to put more money down to invest). There have been three rises since July and in total margins have risen by $5,400 – nearly 90%.

Something similar happened with silver when it went ballistic in the spring. The CME raised margin requirements four times in a fortnight, amounting to an 84% hike.

It’s no wonder both sold off.

It’s easy to get suspicious when this happens, particularly as both times it has stopped the market in its tracks. But the CME does have a remit to calm markets where there is excess speculation. If it ups the amount of margin required, those with too much leverage will have to close their positions.

In the short term it may look ugly, but longer-term I feel it is good news. The weak hands have been well and truly shaken out.

Another factor that will have driven prices down is losses elsewhere. Whether it’s home traders or large funds, people will want to lock in some profit where they have it. Gold and silver are where they will have had it, so that’s where the selling will have come in.

I know from experience this is what happens. The psychology is that you’d rather take a profit than a loss. And it’s a relief to take a profit in a falling market.

The biggest beneficiary of all this has been the dollar, just as it was in 2008. For all the touted ’safety of gold’, it’s still the dollar people rush to in a panic, largely, I suspect, because they must settle their debt in dollars. There were signs this was changing in the summer, but these have disappeared. One day it will be gold, not the dollar, that people rush to. And the looser US monetary policy gets, the sooner that day will come.

The gold bull market is not over

The fundamentals for gold haven’t changed. I don’t need to remind you of them. I imagine the next few months will see whipsawing and consolidation rather than new highs. Indeed we have already seen quite a bounce off Monday’s lows.

In the event of a 2008-style meltdown – which is looking increasingly likely – gold will sell off. The baby will get thrown out with the bathwater. It usually does. But it was the last liquid asset class to capitulate in this carnage. And just as then, I expect, should such a scenario occur, that it will be the first to rise out of it all.

The only thing I can see that will kill my conviction that this bull market is not over is the kind of deflationary crash the likes of Robert Prechter have been predicting, where the Dow goes back to 1,000 points or something stupid. But I don’t think such a scenario is possible. Currencies will collapse first – in which case you would do well to own gold.

We have seen how policy-makers, whether British, American or European, will do everything they can rather than face the music and take the pain. They will be leant on to print, to bail out and to inflate – and print they eventually will. Heck, it appears our lot at the Bank of England are planning to re-start in November.

I took my kids to Thorpe Park a couple of weeks ago. I hated it. My kids loved it. But we’re all already reminiscing about what fun it was. Do the same with gold. Ignore the noise, hold your gold, buy the dips – and in a few year’s time you’ll look back on September 2011 with same fondness you look back at the time you screamed for your life on some crazy thrill ride.

Sunday, September 25, 2011

I drew a fibonacci retracement level from point A dated 1 July 2011 till point B dated 6 Sept 2011.

After registering the lowest level since August at $1628, price rebounded nicely at our 61.8% fibonacci level at $1647 and close the week at $1656.

From the daily perspective, nearest resistances are found at 8 Aug 2011 gap at $1682 and psycho level $1700. The said psycho level is decisive since it is leveled with our fibo level 50.0%. Breaking that level would push the price towards $1750/52 zone (fibo level 38.2%), strong psycho at $1800 and fibo level 23.6% at $1816.

Gold H1

I would strongly stress here that both psycho level $1700 and $1800 plays a major role in the traders sentiment versus bargain hunting appetite.

Going south, Friday’s low at $1628 should provide the first support before a marching towards another psycho level at $1600. Further down, $1577 and $1550 should provide the needed support.

Gold is still in long term trend with the trend line drawn from 28 Jan 2011 is still much attach.

While the twist program seem to lure some traders to sell 0ff their gold, I’m looking at it as a short term correction. With the recent lower price, gold bargain hunters are looking ready to steps in.

While I’m bias to the upside, a potential drop towards $1600 is possible and I expect a mighty bounce from the said level.

By Shaun Connell 24th September, 2011I’ve received nearly a hundred emails over the last two days from people worried about the correction going on in gold and silver right now. Silver prices have tanked nearly 30%, and gold prices have dropped several hundred dollars.Perhaps the simplest explanation of what I'm doing is : the same thing I was doing last month, the month before, and the month before that. We've been here dozens of times, folks, and the best strategy is one that doesn't require you to change everything because prices take a dive. Markets are complicated - but a good instrument strategy for most people should be simple.Keep Buying Gold and Silver
Emotionally speaking, we’re wired to want to dump an asset when it dips and buy it when it’s going up. Ironically, this leads to most people getting absolutely destroyed by the market. My strategy is simple and timeless. I’m writing an entire course on it that I’ll be emailing subscribers about in a week or two — it’ll explain how to invest in gold during bull markets, bear markets, sideways markets, and every other kind of market.
Good strategy ignores the season, timing, and everything else — good strategy works always. It let’s you sleep well at night, turn off the news, and live your life. Stay tuned for the course.It’s All About Consistency
Don’t save up money to buy gold or silver all at once — buy it gradually. This cuts the volatility and is just generally less risky. The best way to buy gold and silver gradually over time is through Silver Saver. They do both gold and silver, and automate the process of buying physical bullion every week or month. It’s an amazing idea — I wish I’d thought of it first.It's All About Diversity
Remember, gold stays flat over time. We’re in a bull market, but over time, the value of gold goes up just slightly. This is very, very good — we should make gold the official money of our government again. But if this is your only investment asset, you’ll get destroyed over time.
This is a huge market opportunity. If you like stocks, real estate, gold, silver, oil, or pretty much anything, then they’re all on sale. Don’t just buy gold — buy enough of every cheap asset. Stay balanced and don’t be afraid to re-balance. I recently bought some Philip Morris International, and will probably be buying some more soon.It’s All About Nerves of Steel
Most people lose money investing because they chicken out. On the bright side, this means if you’re able to control your emotions, you can make a killing. I’m not a fan of Warren Buffett, but he did say something that was brilliant: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”Could This Be the End of Gold?
If you didn’t think so last week, and nothing has changed, then you shouldn’t think so now. That said, the best time to buy gold was 15 years ago. The second best time is always now — always, always. Same for stocks. Same for land. Same for a good business.
Investment advisers can’t stand the investment beliefs I have, because it basically makes their life more difficult. Their job is to get you worried so you’ll pay them money to hear someone who barely is in the middle class after decades of being an “expert” tell you what to do. I’m in partial retirement, and I’m not yet 30. Good strategy wins. Always. This is an important philosophical concept, and it’s why so many people can’t make money — they just go with the stream, rather than against the stream.
Over the next few weeks, I’ll be letting you know about a course I’m almost finished with. It’ll explain everything you’ll need to know about investing in gold for the long haul. It’s explained so simply, you’ll wonder why you hadn’t thought of it yourself. And more importantly, it’s a strategy that has worked over the last 30 years — not just during “bull markets”.

Friday, September 23, 2011

Today I want to briefly follow up on gold from yesterday to illustrate (in almost real time) the tremendous power of my tramline methods for putting in price targets.

When I left the gold market early yesterday morning, it had broken minor support at the $1,800 level, where I put on a short trade.

Then the market fell to my second level of support at the $1,770 level. I noted that if this level gave way, it was off to the races.

After signing off, the market collapsed, along with just about everything else.

For the gold bears, it was truly exciting action, and I was pleased to be amongst them.

My target was hit within hours

I had drawn in my tramline pair and said that my first target was the lower tramline at the $1,730 area. I had little idea that this target would be hit within a few hours!

Here is the updated chart:

(Click on the chart for a larger version)

I have marked the point where I had signed off yesterday with a yellow arrow. The market collapsed right to my tramline for a gain of $50, or a profit of £500 per £1 bet (going short).

Note the oversold momentum reading at the tramline where a bounce would be expected.

But what now? Will the lower tramline hold?

Beware: the ‘bond bubble’ is about to burst

Right now the flow of money into UK government bonds is frighteningly high...

Thousands of private investors are blindly pouring money into bonds in the hope of getting a safe return, while pension funds and fund managers are ALL using them for a big portion of their portfolios.

But they could be making a lethal mistake.

As I write, the market is staging a fight-back:

(Click on the chart for a larger version)

The first bounce off the tramline has taken the market right to my central tramline, which lies mid-way between my original lines! This is marked by my green arrow.

Very pretty. And that was also a great place to short again.

This central tramline sports some nice touch-points, as marked by my purple arrows. I believe I can rely on this line.

If gold goes below $1,700, much lower prices beckon

OK, the market is trying to get back to this central tramline as I write.

Longer-term, yesterday's low in the $1,720 area is only $20 above the crucial $1,700 support from August. If this gives way, that would confirm the double top and much lower prices would beckon.

Of course, long-term traders who believe we have seen the tops would still be holding their short positions – and adding on rallies.

As I have said before, traders who see the potential early in the trend will reap the most rewards.

And don't forget to be searching for those tramlines on your charts.

Have a great weekend!

Got a comment on this article? Leave a comment on the MoneyWeek website, here.

Wednesday, September 7, 2011

There are growing signs that gold is looking toppy. Yet most people are NOT overinvested...

WAY BACK in 2002 – and in 2003 (and 2004...) – my dad told me the following:

"Son, I'm behind you in everything you do...But there's no way I'm buying any gold."

This was his reason:

"Son, I bought gold Krugerrands in the late 1970s, and I'm still down on 'em 25 years later. Gold is never going up."

In the nearly two decades I've been analyzing investments, my dad bought just about everything I recommended. But he drew the line when I recommended gold in 2002, writes Steve Sjuggerud in his Daily Wealth email.

I thought, "Wow. Now this is what a bottom looks like...when even my dad doesn't trust me on this one."

Back then, the gold story was simple to me...

Gold is financial catastrophe insurance. When is catastrophe insurance the cheapest? When there hasn't been a financial catastrophe in decades. In the early 2000s, that's where we stood. So I recommended buying gold. It wasn't about being a gold bug. It was about buying something cheap.

Back then, my parents bought everything I recommended – except gold. And my in-laws were starting to do the same. But they drew the line at gold, too. They thought I was nuts.

What really did it was when I started recommending Gold Coins in 2003. Cancellations to my newsletter started pouring in. The typical letter said, "Steve has always had outside-the-box ideas, but this Gold Coins garbage has gone too far."

I'd never seen such a hated asset class. I personally believed gold could absolutely soar. And readers who actually took my advice and bought my 2003-recommended MS-63 Saint-Gaudens Gold Coins made hundreds of percent profits.

Now, nearly a decade later, the situation is much different...

Gold has gone up 10 years in a row. My in-laws now have a big portion of their portfolio allocated to gold investments. And all this week, CNBC is having a special called "GOLD RUSH," where the commentators are in underground gold mines in South Africa.

A decade ago, you could hardly get a quote for gold on CNBC or Yahoo Finance. Today, gold quotes are on the front page.

If you want to make hundreds of percent on an investment, you have to buy it for pennies on the Dollar, when nobody wants it. With a week-long gold special on CNBC, it's hard to say nobody wants it.

In short, it feels like we're closer to a top than a bottom in gold. On the other hand, the numbers we track tell us we might not be at the top yet, because most people are NOT overinvested in gold.

The details are complicated. But the basic thought is simple: People are watching gold go up, like spectators watching from the sidelines. They are not active participants...yet.

Colleague Chris Weber explained the situation best recently:

This kind of market [in gold] is the dream of an investor like me. A bull that is so quiet and so looked down upon by most people...If you are just coming on and are hesitating to put too much of your wealth in the area, I can say without worry that there is still a lot of room, and time, left.

I believe Chris is right. There is more upside. It sure doesn't feel like the real estate boom, or the dot-com boom yet, when EVERYBODY is in. That's when we're at the top.

Gold will certainly have extreme corrections. On its march from $35 to $850 an ounce in the 1970s (peaking in January of 1980), gold lost HALF its value multiple times. But I don't believe the top is in yet.

Former stock-broker, mutual-fund vice-president and hedge-fund advisor Dr. Steve Sjuggerud is the founder and editor of True Wealth. Launched in 2001 and now one of America's best-followed newsletters for private investors, True Wealth also provides free analysis and ideas in the Daily Wealth email service.